In an exclusive interview with FP, Secretary of Defense Leon Panetta sounds off on the U.S. embassy attacks, al Qaeda, and what Americans need to prepare for.

In his Pentagon office last Friday evening, a smiling but tired-looking Leon Panetta drank a Sprite on ice and sat for an extensive interview with Foreign Policy, in which the defense secretary spoke publicly for the first time about last week’s remarkable, unexpected protests across the Middle East. Even as wall-to-wall media coverage showed angry young men scaling U.S. embassy walls, setting cars and buildings aflame, and hoisting al Qaeda’s fblack flag, Panetta called the demonstrations "convulsions" related to the political tumult in a region that had cast off dictators for democracy. The protests, Panetta argued, were as unreflective of popular Middle Eastern opinion as "a Ku Klux Klan demonstration" in the United States.

But the prospects for more unrest are widespread, Panetta acknowledged, saying the military was positioning forces to respond to as many as 18 sites of concern — far more than the two embassies in Libya and Yemen that 100 Marines have so far been hurriedly deployed to protect. Just a year ago, Panetta hailed the impending "strategic defeat" of al Qaeda; in the interview, he clarified to say he was talking about "the al Qaeda that attacked the United States of America on 9/11," while its affiliate groups are in fact now growing in Yemen, Somalia, and across North Africa.

In a normal week, the top national security news would have been the public row between Israeli Prime Minister Benjamin Netanyahu and Obama administration officials over whether to set "red lines" that would trigger military strikes to halt Iran’s nuclear program. But Panetta dismissed Netanyahu’s heated rhetoric, repeated on this weekend’s U.S. talk shows, about the need for such "red lines" in the effort to pressure Iran: "The fact is, look, presidents of the United States, prime ministers of Israel or any other country — leaders of these countries don’t have, you know, a bunch of little red lines that determine their decisions."

On Afghanistan, where another deadly insider attack struck Helmand’s Camp Bastion on Friday, Panetta acknowledged that some of the toughest fighting is yet to come in the East, before security in the final sections of the country is handed over to Afghans by the end of 2014. As for whether the White House will leave a robust enough post-surge force for two more years of fighting, Panetta said, "My view is that the president of the United States will rely a great deal on the recommendations of General Allen as to what he needs to accomplish the mission."

The next day, Panetta departed for Japan and China, where he said he expected to present himself as a mediator in the dispute that has once again heated up over islands that both nations claim. Interestingly, Panetta said that he had had a good intelligence relationship with China when he was CIA director, which gives him hope that he can continue to thaw relations between the Pentagon and the People’s Liberation Army. When asked if that meant that China was not America’s top geopolitical foe, Panetta coyly replied, "I’m not going to get into the Romney game."

LEON PANETTA: Let me just say a few things. As I’ve said before, I think we’re at a turning point, certainly after 10 years of war, but I also think that the world to some extent is at a turning point in terms of, you know, transitioning in many ways to a whole new era out there. What that era will look like I guess we’ll be asking questions. But clearly there’s a sense that things are changing. For us obviously, having confronted after 9/11, confronted terrorism, and they were our principal enemy, we’ve gone after them, and have in fact weakened them and weakened their leadership and, I think, impacted on their ability to exercise the command and control necessary to plan a 9/11-type attack.

We brought the war in Iraq to an end, we’re in the process of doing the drawdown in Afghanistan, with a plan that we think has us on the right track towards completing that transition. NATO in many ways was tested in Libya and actually did a very good job there and is doing a good job in Afghanistan, as well. It’s an alliance and partnership that is working effectively for us. And in addition to that, you know, I think I sense that we’ve had to as a result of those changes plus the budget constrictions we’re facing have had to develop a new defense strategy here that in many ways has to adapt to that changing world that I just discussed.

At the same time that we have in fact moved in the right direction in some of these key areas, there remain some very serious threats in the world that we’re in, an array of threats that is very different from the past. Most in my 40 years in this town we were confronting the Soviet Union, and today we’re confronting a myriad of threats that haven’t gone away even as we face budget constrictions. Normally, when you reduce the defense budget, it’s a period where the threats that you confronted in some ways have gone away or have been reduced.

We’re going through a period where we have some very real threats out there, still confronting terrorism, still fighting a war in Afghanistan, facing North Korea, the threat from North Korea, facing the threat from Iran, facing turmoil in the Middle East as we’ve seen over the last few days, facing cyber-threats in a very new world in what I call the new battlefield of the future. When you put all that together, combined with rising powers like China, Brazil, and India and how we confront that kind of transition, we have some real issues that we have to confront.

The defense strategy we designed was trying to — how do we develop something that is agile and flexible, allows us to deploy quickly, allows us to be able to move, allows us to be able to be on the cutting edge of technology because frankly all of that will be necessary as we deal with these threats. Yes, we have to focus our force protection to the Pacific and the Middle East. Yes, we have to develop a new presence in dealing with the rest of the world that is innovative. But at the same time we’re going to have to invest in the future. What is it that we have to invest in that will make us agile, that will make us flexible, that will make us capable of dealing with the myriad of threats that we’re going to face as a nation. I think we did that in the defense strategy. I think that we at least got the right elements. It’s a work in progress, but I think we have set a foundation for what the defense of this country needs to look like as we confront these challenges that I’ve just described.

FP: It’s a daunting list isn’t it? Well, let’s start with the week’s events in Libya, Egypt, and around the region. How much of this is a surprise to you and how much did the U.S. know before this? There are questions now, already, about intelligence, and whether the U.S. knew any of this was coming or could have done more to prevent it. What’s your assessment of that and the current security situation?

PANETTA: It’s something that’s under assessment and under investigation, to try to determine just exactly what happened here. There’s no question that the video has played a larger part in igniting a lot of demonstrations that have taken place. I think clearly that was the case in Egypt. How much of a role it played in Libya is something that I think is currently under investigation, to determine exactly what happened. And it clearly is impacting in all of the other areas that we’re dealing with now — Tunisia and Khartoum, some 17 or 18 places that we’re focusing on.

FP: Seventeen or 18 places?

PANETTA: That’s right, that we’re playing particular attention to as areas that we have to be prepared in the event that these demonstrations get out of control.

FP: So, so far, you’ve already sent troops or assets in some way to Libya, Yemen — any others? Or we’re just looking?

PANETTA: No, what we have to do here at the Defense Department is to make sure that we’ve positioned our forces so that, if we’re asked to respond, we can do it quickly and are prepared to act to protect our personnel and people. That’s what we do. That’s what we’ve done in the past, and that’s what we’re trying to do now. But it does mean that we’ve got to deploy our forces so that we’re in position to be able to respond to any of those areas, if in fact they become a situation in which our personnel and property are jeopardized.

FP: Are these events evidence that the U.S. somehow misread the Middle East? Misread the [Arab] spring? Should have perhaps left troops in Libya after Qaddafi was killed? Do you think that’s fair criticism?

PANETTA: You know, I really think that before we draw, you know, big, big conclusions about all this, we really have to take the time to analyze what’s happened. We have seen videos and commentaries and burning of Qurans that have instigated demonstrations and have instigated situations where violence occurred, and I don’t think it necessarily represents that somehow the wrong policies were put in place.

What it represents is that we are still dealing with a lot of the elements of extremism that want to use those kinds of events in order to demonstrate against the United States. I mean, al Qaeda has been doing that, other extremists have been doing that for a long time, this is nothing new. What we have done, our response to that was basically to confront al Qaeda directly and to go after their leadership and to confront other extremism as well. And I think that, as I said, overall I think that we have been successful at weakening that threat.

At the same time we have seen dramatic change in the Middle East. We have seen a number of dictators who have come down, in Tunisia, in Egypt, in Libya, and a strong possibility the same thing may happen to Assad in Syria. And that, that, frankly, has been a good thing. And giving people in that region the opportunity to kind of shape their future and hope that they can move in a better direction than they have in the past, I think, has been an important opportunity for them and it has been an important opportunity for us.

I do not think that a particular event like this should derail the efforts of a Libya or a Tunisia or an Egypt or others to try to establish a democracy for the future and a government that responds to their people. I think we’re gonna have ups and downs. This has been a major change that has gone on in the Middle East. I think you’re going to see convulsions as we go through it, I think you’re going to see ups and downs as we go through it. But if, in the end, they can continue to move in a direction that allows their people the opportunity to better govern their own future, then I think it will have been worthwhile.

FP: But on al Qaeda, so does this change your calculation — last year you said they were nearing "strategic defeat." But since then all of these things have happened as you mentioned. In your 9/11 speeches you say al Qaeda has now spread in Yemen, Somalia —

PANETTA: Yes.

FP: [House Intelligence Committee] Chairman [Mike] Rogers says there’s al Qaeda elements in Libya. So are they still near "strategic defeat" or has something changed?

PANETTA: I think the elements that were involved in 9/11, the leadership that was in involved in 9/11, I think that they have been seriously damaged, and that, you know, we are continuing to target them but I think we have eviscerated their leadership. But, having, so —

FP: — that sounds like a qualification, though.

PANETTA: No, no. Clearly al Qaeda, the al Qaeda that attacked the United States of America on 9/11, we have gone after in a big way. And I think have badly damaged their leadership and the capability to conduct these attacks. We always knew that elements of al Qaeda still existed in other areas. We knew we had AQI [al Qaeda in Iraq] in Iraq, AQAP [al Qaeda on the Arabian Peninsula] in Yemen, we had AQIM [al Qaeda in the Islamic Maghreb] in North Africa. We always knew we would have to continue to confront elements of extremism elsewhere as well. And we have. I mean, we have successfully gone after AQAP in Yemen. We’re doing the same thing with regards to al-Shabaab in Somalia. And we’re in the process of being able to put together a strong effort against AQIM in North Africa. So, we have in fact made tremendous progress in going after those arguments. As a matter of fact, I think of something — in my mind, when they resort to demonstrations as a result of videos, it is an indication to me that in fact they are trying to strike out from a position of weakness, not a position of strength.

FP: It was shocking though, wasn’t it, to see the black flag of al Qaeda flying at the U.S. embassy in Tunis today?

PANETTA: Yes. They’re still — they will still try to do that. Just like the Taliban in Afghanistan makes use of insider attacks, makes use of IEDs, largely speaks to their inability to regain any of the territory that they’ve lost. So they resort to those tactics. And the same thing is true for al Qaeda, they’re going to resort to these kinds of tactics, because in many ways I think they have lost their voice in the Middle East. And one demonstration of extremists, any more than a Ku Klux Klan demonstration in the United States, is not necessarily reflective of what the rest of the country feels.

FP: Can I ask you about another challenge in the Middle East, which would have probably been the big news this week if it weren’t for these events: red lines.

PANETTA: [laughs] Where are those damn things?

FP: I’m sure you know exactly which ones I mean. Should we have one? Do we need them? And what do you think about your friend Prime Minster [Benjamin] Netanyahu, who I know you visited with and I’m sure this subject must have come up in your conversation?

PANETTA: Look, the fundamental issue is whether or not we agree that Iran should not have a nuclear weapon. And the United States, Israel, the international community, I think, is pretty firm that Iran should not have a nuclear weapon.

The issue then becomes — if the world community is unified on that position, as I’m sure Israel is, in that sense, unified with us in opposing that — then the issue becomes, all right, what are the factors that would tell us whether or not they’ve made the decision to go ahead and build a nuclear weapon? And to that extent, you know, intelligence, my whole shop, basically looks at a number of factors to try to determine whether or not Iran has in fact made that decision. Now what intelligence basically tells us now is that they have not made that decision. And that while they continue to do enrichment, they have not made a decision to proceed with a nuclear weapon. And I have to tell you that I think the intelligence community, whether it’s Israeli intelligence or United States intelligence, has pretty much the same view. And they also have the same view that if we got intelligence that they made a decision, that there’s a timeline here that involves anywhere from a year or a year and a half, depending on who you talk to, before they would in fact be able to accomplish that.

So, if what I said is the case, then the question becomes how can we continue to make sure that we are paying attention to the intelligence, that we continue to look at Iran to determine what they’re up to, and yet at the same time, you know, use our capability and the unity in the international community to bring as much pressure as possible on Iran to not move in that direction, but move in a direction that would allow them to be able to abide by international rules when it comes to enrichment?

That, I think, is how we view the challenge here: Make very clear to them what they can’t do, make very clear that this is not about containment it’s about prevention, but at the same time, give them a door so that we ultimately could hope to resolve this peacefully as opposed to having to take military action.

FP: But, sir, a decision and the one-year timeline that everybody says to agree on — that sure sounds like a threshold, if not a red line. Isn’t that a point of no return?

PANETTA: But the fact is — the fact is, look, presidents of the United States, prime ministers of Israel or any other country — leaders of these countries don’t have, you know, a bunch of little red lines that determine their decisions. What they have are facts that are presented to them about what a country is up to, and then they weigh what kind of action has to be taken in order to deal with that situation. I mean, that’s the real world. Red lines are kind of political arguments that are used to try to put people in a corner.

FP: Well that’s what I was going to ask, if you feel that that’s what’s going on this week, if for whatever reason, that there has been a serious rift in the relationship between Israel and the United States, or that there is politics being used to put you and —

PANETTA: Let’s just say, when you have friends like Israel, you engage in vigorous debates about how you confront these issues, and that’s what’s going on.

FP: An unusually public version of that.

PANETTA: [chuckles] It sometimes, in democracies, plays out in the public.

FP: Can we go to Afghanistan? A couple of weeks ago we spoke with General Allen and he’s very confident that things are on track. The surge troops are coming out, and he will make a recommendation to you and up to the president about troops into the fighting season next year. What’s your report card on the surge, how do you see how good it’s been, and how confident can General Allen be in keeping a big of fighting force there as possible to make sure you don’t squander the progress that he says he’s made?

PANETTA: Look, as part of the Allen plan, he presented kind of clear path towards the end of 2014 that would get us to that point and the key right now for this year is to complete the transition, the third tranche of areas, and by the time the third tranche is completed, which should be sometime this fall, 75 percent of the population will be under Afghan security and control. At the same time, obviously, we wanted to complete the drawdown that the president requested, and we will achieve what sometimes people forget is a huge logistical challenge, which has been accomplished pretty effectively.

Now the challenge is to continue that momentum, continue the transition, and ensure that we have a sufficient force in place in order to complete the fourth and fifth tranches, which are going to be the more difficult ones, and reach a point sometime in the fall of 2013 after completion of the last transition, where we will turn over combat operations to the Afghans.

We’ll be there, we’ll continue to obviously be engaged if we have to, but they will be in charge of combat operations. And then that last year, make sure that we keep them on track, strengthen the governance mechanisms, complete the election, and then obviously draw down at the end of 2014. What we look for from General Allen is his best advice to the president. Having now completed the drawdown as to what exactly is going to be needed to reach these other goals that I talked about. I think the president has tremendous confidence in General Allen as I do, so that is going to be the next step to look at that. And then obviously, at the same time, discuss what are the elements of the enduring presence beyond 2014 that we’re going to have to put in place.

FP: Let’s just pretend that he’s going to want as big of a fighting force as possible, can he feel confident that to get through the fighting season next year and really cement this ANSF [Afghan National Security Forces] sustainability issue and to get maybe the rest of the bad guys…

PANETTA: My view is that the president of the United States will rely a great deal on the recommendations of General Allen as to what he needs to accomplish the mission.

FP: Conventional wisdom is that before 2014, there’s still a big fight to come between Kabul and Pakistan, so that is the real trouble area, that this is not going to be sitting it out for a couple of years like the end of Iraq. Is that fair to assume?

PANETTA: Yeah, yeah. In terms of?

FP: That this is still going to be heated fighting to come…

PANETTA: Oh yes, especially in the east. The east is being able to transition those areas, being able to make sure the Afghans are in fact capable of maintaining security in those areas, is going to be something that we’re going to have to work hard at. This is going to be some of the toughest areas that we’ve gotta deal with. Having said that, one of the things that represented a turnaround in 2011 was the fact that the Afghan army was becoming much more effective operationally at doing their job and that they’d become much more capable and we’re continuing to see that not only in battle, but we see it in special operations as he probably pointed out.

When something does happen there, when a terrorist strike occurs or an IED goes off, it is the Afghans that immediately go in and provide security. But that’s the test, is to make sure that they have the capability. That will tell us a great deal. If they provide good security, then I think good governance can follow.

FP: It’s striking to hear this conversation, which is about the Middle East, about Afghanistan of course…

PANETTA: You’re just making my point I made at the beginning. All hell’s breaking loose [laughter].

FP: Well, what’s so striking, right, is that the other big headline news of the week, if we weren’t talking about the Middle East, and we weren’t talking about Iran and Israel, would have been what’s going on between China and Japan, and it seems like something that’s escalated. There are questions about the Chinese leadership and who exactly are you going to get to meet with and where is the heir apparent… maybe you can have the first interview with Xi Jinping.

PANETTA: One of my challenges is to find out where he’s at [laughter].

FP: So first of all, how is it possible for the U.S. to think about rebalancing toward Asia when there are so many security threats outside the region, number one; and then, number two, give us a little bit of a sense of how concerned you are about what appear to be rapidly escalating tensions between China and Japan as well as some of its other neighbors.

PANETTA: One of the things about the United States military is we have to walk and chew at the same time. The fact is that we have to deal with threats around the world and have the capability of doing that. I think that’s a test of whether or not we are a strong military power is our ability to be able to do that. And in many ways that’s exactly what we’re doing.

At the same time we’re talking about rebalancing to the Pacific, we have deployed a large force to the Middle East. That force, two carriers, plus all of the other elements that we’ve deployed out there, are for the purpose of being in position to be able to respond should there be a conflict with Iran. Now, fortunately, those forces are now responding to these other events that are taking place.

At the same time, when it comes to the Pacific, we have a significant naval presence; we have a large number of troops — how many do we have in South Korea now? About 20,000 plus, almost 25,000 in South Korea, plus a large Marine contingent in Okinawa, and now we are also developing other deployments there in Darwin, we are looking at developing a deployment to the Philippines as well, and try to pursue these kinds of rotational presence approaches that we’ve made as part of our strategy.

So we continue to focus on the Pacific. I do with Sam Locklear [commander of Pacific Command] in the same way that we do with Jim Mattis in Centcom to really look at that area, you know, how are deployments going, how can we strengthen our position there, and at the same time, what are the issues that we’re confronting there.

One of the areas of concern that Secretary Clinton pointed out that we are all concerned about is the whole issue of the South China Sea and these territorial disputes that are creating the potential for conflict between these nations. Now the good news is that the nations of the Pacific, specifically the ASEAN nations, have recognized this problem and for that reason tried to develop a code of conduct to try to deal with these territorial disputes. We are still waiting for an enforcement mechanism, still waiting for them to put teeth in the process, but the fact that they’ve been able to do that is an indication that they want to try to resolve these issues peacefully. What we’ve urged both China and Japan to do is to resolve these disputes as peacefully as possible as well, and that will be one of the things I will urge Japan to do, in the stop in Japan as well as China. These kinds of disputes have to be, we have to find a way to resole these peacefully. There are a lot of concerns in that area, issues dealing with nuclear proliferation, issues dealing with the whole question of maritime navigation rights, issues dealing with trade that have to be dealt with. The challenge for the countries there is to be able to develop a mechanism that allows all of these countries, China as well as others, and the United States to come together in a peaceful way to try to resolve these challenges. That’s what I’m going to try to urge.

FP: So you see yourself as a mediator?

PANETTA: In many ways that’s what I think the United States can do.

FP: Are you sticking around for a second term?

PANETTA: I do these damn jobs day to day [laughter].

FP: Maybe that’s why you’ve been able to do so many.

PANETTA: That’s right, I’ve never kinda said, "OK, I’m going to do this at that time in the future." I always do these jobs day to day and try to do the best job I can and then see what fate brings me.

FP: I was on [former Defense Secretary Robert] Gates’ trip to China and a big concern is how much the U.S. knew about their strategic forces. Are you going to go there as well and what concerns does the department still have about what the U.S. knows about their command?

PANETTA: One of the keys to a better mil-to-mil relationship with China is transparency. That’s one of the things that I’m going to urge. I suggested to [Chinese Defense Minister] Liang Guanglie when he was here, that we try to look at — people didn’t think I should broach the issue — but I said, let’s talk about cyber, let’s try to see if we can have greater transparency on cyber. Let’s talk about some of our military capabilities. On the intelligence side, I had a very good relationship with China on the intelligence issues. Even though relationships would go up and down, there was a good relationship because we had very good communication and exchanges with regards to intelligence information. What I’d like to do is try to take that same approach and apply it on the mil-to-mil basis. You know we’re going to have differences, and policymakers will have differences, but if we can maintain a steady relationship, a transparent relationship — what are the capabilities, what are the areas we can work on, you know what can we do together, can we do exercises together, can we try to improve that knowledge and communication — that I think would be helpful to both countries, so that’s what I’m going to try to work on.